State considers creating alternative to federal flood insurance

With thousands of homeowners locked in their homes because
of spiraling flood insurance rates, Florida
regulators are working on a program to lure private companies to write flood
insurance in the state as an alternative to the federal program.

The Florida Office of Insurance Regulation is talking to insurance companies who are interested in coming to Florida and writing expedited flood insurance policies, said Rebecca Matthews, the department’s deputy chief of staff at a meeting of the Senate Banking and Insurance Committee on Tuesday.

“This is an issue that may need to be taken care of a little sooner than session,’’ she said, explaining that regulators do not plan to wait until legislators return to Tallahassee for the spring lawmaking session in March. “A handful of companies have shown interest.”

Sen. David Simmons, R-Altamonte Springs, chairman of the committee, said lawmakers must respond to the unintended consequences of the Biggert-Waters Flood Insurance Reform Act of 2012 which could harm the state’s economy.

“If there’s money to be made in this and the flexibility is given to private enterprise, then we can get that started,’’ he said. “The question, of course, is are we going to be able to do it fast enough.”

The act attempted to phase in a series of rate increases in the National Flood Insurance Program as a way to close the program’s $24 billion deficit. The biggest hit will be to an estimated 268,000 Floridians whose homes were built before 1974 and are in high risk flood zones who will lose their subsidized rates when they sell their homes. For some homes, the increase could mean their rates will rise from from $500 to $16,000, the committee was told.

Thousands of other homeowners, including many who purchased homes in the last year, also face soaring premiums because of new flood maps that take effect as a result of the act.

John Sebree, senior vice president of the Florida Realtors Association, told the committee that the rate shock from the flood insurance rate hikes will scare buyers away from purchasing older homes and Florida’s gradually recovering real estate market “could come to a screeching halt.’’

He urged legislators to consider a Florida insurance alternative, rather than wait on the Congress which has been unable to agree to delay the rate increases.

Simmons said that if the private market can’t respond fast enough then the legislature should consider creating a insurance pool of last resort that could offer rates lower than those provided under the federal program.

Nearly two million Florida homeowners carry flood insurance through the national program, making up 37 percent of the entire federal pool. In the last 20 years, Floridians have paid in $16 billion in premiums into the program and saw less than $4 billion returned in claims.

Those numbers seem to indicate that although Florida suffers from its reputation from windstorms, its flood risk is not as steep and could potentially be profitable for private companies.

But insurance experts told the committee that insurers would need extraordinary regulatory flexibility if they were to enter the Florida flood insurance market because the federal program is not able to give them the data they need to determine how much to charge and assess their risk.

“The private sector has not written flood insurance because, when you start a company you have to have a ‘me too’ filing of something that already exists,’’ said Locke Burt a former state senator from Ormond Beach and an owner of Security First Insurance. In Florida, there is no company that already exists.

Rep. Bryan Nelson, R-Apopka, said he is skeptical the private market can move quickly enough to fill the breech.

“I don’t think anything is off the table,’’ he said, after learning of the OIR and Senate plans. “The big problem we have is we don’t have enough information to base a decision on and, until we have expected loss ratios, I don’t think the private sector is going to be ready to jump in.”

Nelson said he believes there may be enough capital in the market now to draw new business to Florida but it would have to come from companies that already do not face exposure from Florida’s hurricane risk.

Burt and his lobbyist, former state representative Don Brown, a Republican from DeFuniak Springs, recommended the legislature create a task force to get working on a solution.

In the meantime, Simmons said the threat of Florida homeowners taking their money out of the National Flood Insurance Program might provoke Congress to pass a solution.

“We can provide leverage to get a solution,’’ he said and, if Congress doesn’t act when 37 percent of the homeowners drop their flood insurance, “we’ll have a solution of our own.”